Democrats Blast GOP Plan to Cut Back Direct Student Loans

"welfare for banks," several Democratic senators joined Education Secretary Richard Riley on Thursday to oppose Republican plans to cut the government's direct loan program. The budget reconciliation package approved by the House last week eliminates the direct loan program altogether, while the Senate caps the government's piece of the market at 20%. Secretary Riley and the senators defended direct student lending as a cheaper, middle-class friendly alternative to the current system under which banks charge origination fees and earn interest on no-risk, federally guaranteed loans. "The Republican plan will force (students) back into the bureaucratic maze of the old guaranteed loan program, where 7,000 lenders and 41 guarantee agencies bury students and colleges in red tape," said Sen. Edward Kennedy, D-Mass. "The Republican bills are an outright attack on direct lending, to protect the banks and guaranty agencies." Sen. Paul Simon, D-Ill., said the legislation protects banks at the expense of students. "Now, if we want to have legislation to assist banks, let's call it the Banking Assistance Act. Don't go under the camouflage of assisting students." Differences between the House and Senate direct student lending proposals will be hammered out in conference during the next week. Sen. Simon said an expected presidential veto of the budget package will force Republicans to reconsider direct student lending cuts. "Then we can sit down and do some real work on this issue," Sen. Simon said. Mr. Serb writes for the Medill News Service.